The Role of Choice of Law in National Class Actions role of choice of law in national class actions linda silbermant intro d uctio n ..... 2001

THE ROLE OF CHOICE OF LAW IN NATIONAL CLASS ACTIONS

LINDA SILBERMANt

INTRO D UCTIO N .................................................................................... 2001I. THE DESCRIPTIVE STORY .............................................................. 2002

A. Choice of Law in Class Actions: Some Basic Background ...... 2002B. The Impact ofShutts and Klaxon ...................................... 2005C. The Approach of the Federal Courts (Pre-CAFA) .................... 2007D. State Choice of Law Rules in Class Actions ........................... 2015

II. THE RELATIONSHIP OF CLASS ACTIONS AND CHOICE OF LAW:

THE NORMATIVE QUESTIONS ...................................................... 2022A. Should There Be a Specialized Choice of Law Rule for

Class A ctions? ................................... . . . . .. . . .. . . .. . .. . . .. . . .. . . . .. . . . 2022B. The Impact of the Class Action Fairness Act on Klaxon ........ 2024C. The Appropriate "Federal" Choice Rule ................................. 2027

C O N CLU SIO N ........................................................................................ 2034

INTRODUCTION

A number of the papers in this Symposium on the impact of theClass Action Fairness Act of 2005 (CAFA) have focused on the alloca-tion of state and federal authority with respect to jurisdiction over na-tionwide class actions. This Article takes a different perspective byanalyzing the role of choice of law in selecting a forum to hear a classaction and the effect of choice of law on interstate forum shopping innationwide class litigation. CAFA does not address the choice of lawquestion, and thus interstate forum shopping is likely to continue asplaintiffs seek a forum with an approach to choice of law that will fa-cilitate certification of a nationwide class. Because a federal court is

t © Linda Silberman, Martin Lipton Professor of Law, New York University Schoolof Law. My thanks to Professors Steve Burbank and Tobias Wolff for putting togetherthis terrific Symposium on the Class Action Fairness Act and for their helpful com-ments on my paper, both at the Symposium and at their Complex Litigation Seminarwhere I also presented; and to David Shapiro for our continuing dialogue on the effectof Ktaxon on the federal courts' development of choice of law rules after CAFA. Myresearch assistants at New York University, Jennifer Jones and Jacob Karabell, were ofimmense help in developing and finalizing this Article. The Filomen D'Agostino andMax E. Greenberg Research Fund has provided continuing financial support to me forthis and other class action research projects.

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obliged to apply state choice of law rules under Klaxon Co. v. StentorElectric Manufacturing Co.,' a single state's parochial or pro-aggregationchoice of law rule may be in tension with the "neutrality" in certifica-tion decisions that CAFA is seeking.

The first Part of this Article is an account of how courts tended todeal with choice of law issues in class actions prior to CAFA. The sec-ond Part addresses two normative questions: (1) whether aggregatelitigation justifies a choice of law rule other than what would be calledfor if the case were proceeding as an individual litigation; and (2)whether CAFA calls for a departure from Klaxon and the developmentof an independent federal choice of law rule. This Article suggeststhat a federal choice of law rule, rather than strict adherence toKlaxon, will better achieve the objectives of CAFA, so long as the con-tent of that federal choice rule is no different than the choice of lawrule that would apply in an individual litigation.

I. THE DESCRIPTIVE STORY

A. Choice of Law in Class Actions: Some Basic Background

Choice of law issues have often taken a back seat to other impor-tant issues in civil litigation. But a sea change occurred with thegrowth of nationwide class action litigation where choice of law issueswere central to the basic issue of certification of the class.2 Choice oflaw analysis gained new prominence because attempts to structure na-tionwide classes involving state law claims-such as damage actions forconsumer fraud or misrepresentation, overcharges in contract and in-surance cases, personal injury and breach of warranty claims for defec-tive products, punitive damage classes, and- claims for medical moni-toring-often turn on whether the law of a single state or multiplestates is to be applied.

It should be obvious why choice of law has emerged as such a crit-ical issue in the modem class action setting. The pre-1966 class actionwas limited in its use and confined to those with a tight community of

1 313 U.S. 487 (1941).2 See In re Simon II Litig., No. 00-5332, 2002 U.S. Dist. LEXIS 25632 (E.D.N.Y. Oct.

22, 2002), modifying 211 F.R.D. 86, 178 (E.D.N.Y. 2002) (illustrating the importance ofchoice of law in creating a national class), vacated, 407 F.3d 125 (2d Cir. 2005). For anearlier order and opinion on choice of law, see Simon v. Philip Morris, 124 F. Supp. 2d46, 53-78 (E.D.N.Y. 2000). For a critique of Judge Weinstein's choice of law analysis,see Scott Fruehwald, Individual Justice in Mass Tort Litigation: Judge Jack B. Weinstein onChoice of Law in Mass Tort Cases, 31 HOFSTRA L. REV. 323, 348-59 (2002).

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•3interest. The rights in such cases were 'joint, common, or secon-dary," and accordingly were unlikely to raise issues of the applicationof different laws to the members of the class. Even as to spuriousclasses, where absent class members could intervene after the judg-ment, it was unlikely that parties whose claims were based on a differ-ent applicable law could take advantage of the classjudgment. 4

With the emergence of the Federal Rule 23(b)(3) class and itsstate counterparts, a class action became appropriate when "questionsof law or fact common to members of the class predominate[d]" overindividual issues and the class action was the "superior" method of ad-judication.5 These requirements still serve to command a level of co-hesiveness to ensure that aggregate litigation is the superior methodof proceeding. To minimize the individual issues and the manageabil-ity concerns of class litigation that would likely flow from the applica-tion of multiple laws, class action plaintiffs often seek to establish ei-ther (1) that the law on a particular question is uniform throughoutthe various states of the United States; or (2) that under applicablechoice of law principles a single law can govern the controversy. De-fendants, for their parts, are anxious to show the differences amongthe various states' laws on numerous issues, such as negligence orcomparative negligence, requirements for breach of warranty andfraud, and elements of consumer fraud statutes. Indeed, it is commonon class action certification motions for defendants to offer elaboratesurveys identifying differences among state laws with respect to variouselements of the claims in question. When that strategy is successful-as it often is-defendants must still resist the attempt by lawyers forthe class to show that a single law-such as that of the forum or that ofthe defendant's principal place of business-should apply. Similar is-sues have arisen in the context of Rule 23(b) (2)6 class actions for de-claratory and injunctive relief for the class as a whole where plaintiffs

3I have written elsewhere about the development of the inodern class action. SeeLinda Silberman, The Vicissitudes of the American Class Action-With a Comparative Eye, 7TUL.J. INT'L& COMP. L. 201 (1999).

4 In general, nonmutual issue preclusion will not attach if the applicable law willbe different. See, e.g., Schultz v. Boy Scouts of Am., Inc., 480 N.E.2d 679, 689 (N.Y. 1985).

5 FED. R. Civ. P. 23(b)(3). There are, of course, general requirements for classcertification that must be met under Federal Rule 23 and most state class action rules:numerosity, common questions of law or fact, typical claims or defenses by the repre-sentative parties, and fair and adequate representation by the named class representa-tive. FED. R. Cv. P. 23(a).

6 FED. R. Cwv. P. 23(b) (2) (authorizing class certification where "the party oppos-ing the class has acted or refused to act on grounds generally applicable to the class").

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hope to avoid the express requirements, such as manageability, im-posed on Rule 23(b) (3) actions.

Choice of law has also been a factor in aggregate litigation otherthan class actions. The desirability of having a single law to governcomplex and/or mass litigation is a common thread as reformers seekto find ways to make this type of litigation more efficient. The searchfor a "single law" has generated different types of proposals: a federalproducts liability statute to be passed by Congress,7 the developmentof federal common law in particular areas,8 legislation for multipartycases that included a federal choice of law rule,9 and establishingchoice of law criteria that could lead to the application of a single lawin complex litigation."' None of these ideas reached fruition. WhenCongress in 2002 finally passed the Multiparty, Multiforum Trial Ju-risdiction Act, providing for federal jurisdiction (on the basis of mi-nimal diversity) over any civil action arising from a single accident inwhich at least seventy-five persons have died," it did so without anyprovision on choice of law. Various bills leading up to this legislationcontained proposals for federal choice of law provisions, but eachtime controversy sent the bill down to defeat. As enacted, 28 U.S.C. §1369 provides for consolidation of individual suits and offers an alter-native to the formal class action for the single-event mass accident.Choice of law is not addressed in the statute, but difficult questionsabout applicable law will also arise in these cases. 2 Perhaps because

7 The Common Sense Product Liability Legal Reform Act of 1995, H.R. 956, 104thCong. (1995).

8 See In re "Agent Orange" Prod. Liab. Litig., 580 F. Supp. 690, 710 (E.D.N.Y. 1984)("Given a failure of the legislature and the executive, the federal courts could be ex-pected to step in by creating federal common law to cover a national problem."); Har-old L. Korn, Big Cases and Little Cases: Babcock in Perspective, 56 ALB. L. REV. 933, 939(1993) ("One way out of this morass would be to have federal statutory or common lawgovern such cases .... ).

9 Multiparty, MultiforumJurisdiction Act of 1989: Hearings on HR. 3406 Before the Sub-comm. on Courts, Intellectual Property, and the Administration ofJustice of the H. Comm. on theJudiciary, 101st Cong. 1-2 (1989); see also Michael H. Gottesman, Draining the DismalSwamp: The Casefor Federal Choice of Law Statutes, 80 GEO. L.J. 1, 2 (1991).

10 See, e.g., ALI, COMPLEX LITIGATION: STATUTORY RECOMMENDATIONS ANDANALYSIS § 6.01 (a) (1994) [Mass Torts].

It 28 U.S.C. § 1369 (Supp. V 2005).See, e.g., In reAir Crash Disaster Near Chicago, III., 644 F.2d 594, 610-32 (7th Cir.

1981) (sorting out choice of law questions in a consolidated wrongful death suit wheresome possible fora allowed for punitive damages and others did not). In cases trans-ferred to Illinois (the situs of the crash) from numerous states (California, New York,Michigan, Puerto Rico, and Hawaii), the Seventh Circuit found that application of the

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of the experience with § 1369, none of the bills that resulted in CAFAeven attempted to craft choice of law provisions for that legislation,although there was a flurry of activity on the part of some to try to ad-dress choice of law just as the proposed legislation reached the floorof Congress. 1 But no specific proposal emerged, and there is nochoice of law provision in the legislation.

B. The Impact of Shutts and Klaxon

The failure of CAFA to address the choice of law questions leavesthe role for choice of law in complex litigation and class actions post-CAFA where it has always been in these contexts: to be shaped anddeveloped by judges and applied in common law fashion by thecourts. Answers to two basic questions may help determine how thoserules should be shaped. The first question is relevant not only toCAFA but to other class and nonclass aggregate litigation: does thefact of aggregation (in a class action or other consolidated action) callfor a distinct choice of law rule that takes into account the needs pre-sented by the multiple parties and events that characterize aggregatelitigation? The second pertains specifically to federal cases broughtunder CAFA: are federal courts hearing nationwide class actions un-der CAFA bound by Klaxon to apply state choice of law rules, or canthe federal courts depart from Klaxon and apply "federal" choice oflaw rules?

different choice of law rules of the states in which each action had been filed allpointed to using the law of Illinois, the place of injury.

1 For example, Professors Arthur Miller and Samuel Issacharoff consulted on anamendment to require federal courts to apply the law of the state where the principalclass action defendant resides. See Legal Experts Enter Class Action Debate, Meet with SenateStaff To Discuss Bill, 72 U.S.L.W. 2446, 2446 (Feb. 3, 2004). During the debate in theSenate on February 9, 2005, Senator John Bingaman stated that he had "prepared anamendment that would have reaffirmed the discretionary authority of ajudge to selectthe law of one State" in order to permit "certification for large multistate consumerclass actions," but instead of formally proposing its adoption, he would lend his sup-port to a different amendment proposed by Senator Diane Feinstein. See 151 CONG.REC. S1157, S1167 (Daily ed. Feb. 9, 2005). Senator Feinstein's proposed flooramendment was entitled "Choice of State Law in Interstate Class Actions" and, amongother things, would have instructed district courts: (1) not to deny class certificationon the ground that the law of more than one state would be applied; (2) to use sub-classes wherever possible; and (3) if subclasses were impracticable, to ensure that"plaintiffs' State laws" were applied. See id. at S1166. For further discussion of theamendment by the proponents and the responses to it, see David Marcus, Erie, theClass Action Fairness Act, and Some Federalism Implications of Diversity Jurisdiction, 48 WM. &MARY L. REv. 1247, 1308-10 (2007).

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The pressure for, and subsequent resistance to, a single choice oflaw rule due solely to the aggregate nature of the litigation was pre-sented to the Supreme Court of the United States in Phillips PetroleumCo. v. Shutts.14 In Shutts, the Kansas Supreme Court had found that ina nationwide class action where procedural due process guarantees ofnotice and adequate representation were met, "the law of the forumshould be applied unless compelling reasons exist for applying a dif-ferent law."'' 5 The U.S. Supreme Court reversed, holding that it wasunconstitutional for the Kansas courts to proceed in this fashion whenKansas had no basis for applying its law to the overwhelming majorityof class members who resided outside of Kansas and had leases out-side of Kansas. 16 In addition, the Supreme Court went even further tocaution that a court's adjudication of a nationwide class action did notprovide an "added weight in the scale when considering the permissi-ble constitutional limits on choice of substantive law."' 7 One maynonetheless remain skeptical about the impact of the SupremeCourt's ruling in Shutts, since on remand the Kansas court determinedthat the law of the various states was in fact the same as Kansas law,'and in a related case, the Supreme Court refused to second-guess thestate court's analysis of the substance of the sister state's law. Still, asa formal matter, the choice of law resolution in Shutts has importantconsequences for class certification. Notwithstanding its recognitionof constitutional limits on choice of law in Shutts, the Supreme Courtdid not dictate to either the state courts or the lower federal courtswhat choice of law principles should be adopted in class actions or inany other type of case.

Under Klaxon, of course, the federal courts have been bound toapply the choice of law rules of the state in which they sit. And al-

14 472 U.S. 797 (1985).15 Shutts v. Phillips Petroleum Co., 679 P.2d 1159, 1181 (Kan. 1984).16 Shutts, 472 U.S. at 822.

17 Id. at 821.18 Shutts v. Phillips Petroleum Co., 732 P.2d 1286, 1292 (Kan. 1987).I9 The argument that Kansas had unconstitutionally distorted the interpretation of'

other states' laws was presented to the Supreme Court in Sun Oil Co. v. Wortman, 486U.S. 717 (1988), but the Court refused to review that aspect of the case, id. at 730-31.Justice O'Connor dissented on that point and observed that the result was the same asavoiding application of the law of a particular state. Id. at 744 (O'Connor, J., dissent-ing). She wrote that a court could "invent a legal theory so novel or strange that theother State has never had an opportunity to reject it; then, on the basis of nothing butunsupported speculation, 'predict' that the other State would adopt the theory if ithad the chance." Id. at 749.

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though recently a few states have enacted statutory choice of law20codes, state choice of law rules have generally evolved through case

law development, and the choice of law revolution has come from thehighest courts of the states. A survey of choice of law approaches re-veals that a small minority of states still adhere to the traditional Re-22statemen' choice of law rules, while the remainder use some blend ofcontacts and interests as reflected in the Restatement (Second) of Conflict

222of Laws' and governmental-interest analysis.24 In balancing contactsand interests, a few states express a strong presumption in favor of fo-rum law," whereas most look for a neutral principle of preference toresolve a "true conflict." Of course, state courts, in developing choiceof law rules, are free, subject to the constitutional limits of Shutts, toadopt a choice of law methodology that would facilitate class certifica-tion in nationwide class actions. However, no state supreme court hasexplicitly done so, even when application of the general choice of lawprinciples has led to the application of multiple laws for the nation-wide class, which in turn has resulted in denials of class certificationbecause of lack of commonality, predominance, or superiority.

C. The Approach of the Federal Courts (Pre-CAFA)

Prior to CAFA, most federal courts were reluctant to reformulatechoice of law rules in class actions in the absence of congressional leg-islation or Supreme Court modification of the Klaxon rule for com-plex cases. Indeed, even with Klaxon, the federal courts would be freeto adopt an approach to the interpretation of the requirements ofFederal Rule 23 that would put less weight on the choice of law as-pects for certification purposes or to allocate burdens in a particularway to make resistance to class certification more difficult. But therehas been no such movement by the federal courts; generally they havefound that applicable law is an important element with respect to thedecision whether or not to certify, and once variations in state laws areapparent, most federal courts have imposed the burden on the plain-

20 See, e.g., LA. CRI. CODE ANN. art. 3515-3556 (2007) (originally enacted in 1991,

effective 1992).21 RESTATEMENT OF CONFLICr OF LAws (1934).

22 EUGENE F. SCOLES ET AL., CONFLICt OF LAWs 84-98 (4th ed. 2004).23 RESTATEMENT (SECOND) OF CONFLICT OF LAWS (1969).24 See SCOLES ET AL., supra note 22, at 98-105.25 Id. at 103-05.26 See discussion infra text accompanying notes 76-97.

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tiff class to supply the relevant information to allow the court to makean appropriate choice of law determination on the various issues.2' Ina relatively early decision, Walsh v. Ford Motor Co. (through a joint

opinion written by Judge Harry Edwards and then-Judge, now-Justice,Ruth Ginsburg), the Court of Appeals for the District of ColumbiaCircuit focused upon potential variations in the underlying state lawsto reverse the district court's initial certification of a nationwide classof car owners alleging various breach of warranty claims against a carmanufacturer. Noting that "[t]he Uniform Commercial Code is not

,29uniform," the court held that the burden was on the class actionplaintiffs to demonstrate that the state law variances did "not presentinsuperable obstacles" to class certification . Judge Posner's opinion

in In re Rhone-Poulenc Rorer Inc. pointed to a number of reasons whythe Seventh Circuit, 2-1, found it necessary to overturn the districtcourt's certification of a nationwide class of hemophiliacs on the issue

of negligence for defects in a blood clotting product. On the choiceof law issue, he indicated that the jury was being asked to determinenegligence of the defendant "under a legal standard that does not ac-tually exist anywhere in the world."2 2 He wrote that "[t]he commonlaw is not a brooding omnipresence in the sky, but the articulate voiceof some sovereign or quasi sovereign that can be identified. The voic-es of the quasi-sovereigns that are the states of the United Statessing... with a different pitch."3 Neither the Walsh nor the Rhone-Poulenc opinions discussed the choice of law rule they were applying.Those courts merely acknowledged that the application of the law ofdifferent states made satisfaction of the predominance of common

27 See Spence v. Glock, 227 F.3d 308, 310-11 (5th Cir. 2000). Indeed, that ap-proach has been criticized by some. See, e.g., Patrick Woolley, Erie and Choice of Lawafter the Class Action Fairness Act, 80 TUL. L. REV. 1723, 1741 (2006) ("Federal courts sit-ting in diversity have ... conflat[ed] the choice-of-law burden with the certificationburden.").

28 807 F.2d 1000 (D.C. Cir. 1986). The suit was based on a federal statute, Magnu-son-Moss, 15 U.S.C. § 2301-12, which incorporates state law on breach of warranty, sothe court was in fact using a federal choice of law rule in determining that laws of dif-ferent states were applicable to class members' claims. Id. at 1015-16.

29 Id. at 1016 (quoting JAMESJ. WHITE & ROBERT S. SUMMERS, UNIFORM COMMER-CIAL CODE (2d ed. 1980)).

30 Id. at 1017 (quoting In re Asbestos School Litig., 789 F.2d 996, 1010 (3d Cir.1986)).

31 51 F.3d 1293, 1298-1303 (7th Cir. 1995) (citing settlement pressures, choice oflaw, and bifurcation as reasons for denying certification).

32 Id. at 1300.33 Id. at 1301 (citations and internal quotation marks omitted).

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questions and manageability requirements of Rule 23(b) (3) impossi-ble.

The later decision of the Seventh Circuit in In re Bridge-stone/Firestone, Inc. addressed the appropriate choice of law rule di-rectly and the analysis of state laws that may be called for. In Bridge-stone/Firestone, the district court certified two classes: one of owners ofFord Explorer SUVs with defective tires, and one of owners of certainmodels of Firestone tires, both seeking damages on breach of war-ranty theories. Apparently recognizing that uniform law was essentialto class certification, the districtjudge determined that the applicablestate choice of law rule-that of Indiana-would point to the head-quarters of each of the two defendants; therefore the judge found thenecessary coherence and manageability to permit certification of theclass." The Seventh Circuit reversed certification, first finding thatthe appropriate choice of law rule should be no different from therule that would be applied in an individual case. Noting that the rele-vant choice of law rule in Indiana called for "the law of the placewhere the harm occurred" in all but "exceptional cases,, 3 6 the Courtof Appeals determined that the laws of fifty different states would ap-ply on various issues and that a single nationwide class was unmanage-able. 7 The court acknowledged the temptation to "alter doctrine inorder to facilitate class treatment" but admonished that 'Judges mustresist so that all parties' legal rights may be respected., 38 The courtalso offered its views about the limits of efficiency when measuredagainst accuracy in identifying the rights of the parties under particu-lar laws. The court reiterated the point made in Rhone-Poulenc that a"'decentralized process of multiple trials, involving different juries,and different standards of liability, in different jurisdictions' will yieldthe information needed for accurate evaluation of mass tort claims."3 )

After Rhone-Poulenc and Bridgestone/Firestone, a number of districtcourts accepted the premise that significant distinctions in state lawpresent a monumental barrier to class certification because of the

288 F.3d 1012 (7th Cir. 2002).31 In reBridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 205 F.R.D. 503, 511-13

(S.D. Ind. 2001).36 In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d at 1016 (7th

Cir. 2002).7 Id. at 1018.

I8 Id. at 1020.9 Id. (citation omitted) (quoting In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293,

1299 (7th Cir. 1995)).

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Rule 23(b) (3) "predominance requirement."40 In Cole v. General Mo-tors Corp.,4 1 where the districtjudge certified a nationwide class of Ca-dillac car owners alleging breach of express and implied warrantiesfor alleged defects in the sensors that triggered the air-bag systems,the Fifth Circuit, on an interlocutory appeal, reversed. Both the dis-trict court and the appeals court agreed that the Louisiana conflictsrule pointed to application of the law of the state where the vehiclewas used by its owner and where the contract of repair would be per-

42formed-the laws of all fifty-one jurisdictions. But the appeals courtrejected the view of the district court that the state laws were "virtuallythe same," pointing out several of the specific differences.4 Althoughthe district court had acknowledged that there might be some varia-tions in the state laws, it thought that those differences "could be ad-dressed through subclasses and the normal course of individual trialsthat take place in large litigations";44 however, the Fifth Circuit dis-missed such a cure, stating that "[t]his is hardly the type of extensiveanalysis of variations in law that is required prior to certification. 4"

Nor have courts been particularly sympathetic to allowing certifi-cation of "issues" under Rule 23(c) (4) to avoid "predominance" and"manageability" requirements.46 More recently, in In re General MotorsCorp. Dex-Cool Products Liability Litigation,47 the district court expresslyobserved that

40 See, e.g., In re Gen. Motors Corp. Dex-Cool Prods. Liab. Litig., 241 F.R.D. 305,315-24 (S.D. Ill. 2007) (determining that the application of the laws of forty-sevenstates defeats "predominance" and "manageability").

41 484 F.3d 717 (5th Cir. 2007).42 Id. at 724.43 Id. at 725-30 (quoting Cole v. Gen. Motors Corp., No. 01-0123, 2005 WL

1861960, at *8 (W.D. La. Aug. 4, 2005)).44 Id. at 728.45 Id. (internal quotation marks omitted).46 That point was made explicitly in a footnote in Castano v. American Tobacco Co.,

84 F.3d 734, 746 n.21 (5th Cir. 1996):

Reading [R]ule 23(c) (4) as allowing a court to sever issues until the remain-ing common issue predominates over the remaining individual issues wouldeviscerate the predominance requirement of [R]ule 23(b)(3); the resultwould be automatic certification in every case where there is a common issue,a result that could not have been intended.

Note that the restyled Federal Rules address issue classes in a separate provision, Fed-eral Rule 23(c)(4), whereas under the former rules the provision was Rule 23(c) (4) (A)with 23(c) (4) (B) covering subclasses (now 23(c) (5)).

47 241 F.R.D. 305, 314 (S.D. Ill. 2007).


where class certification is sought as to issues under Rule 23(c)(4) (A),Rule 23(b) (3)'s requirements of predominance and manageability mustbe satisfied, and class certification must be denied where those require-ments cannot be met by reason of, for example, the difficulties involvedin attempting to apply the laws of numerous states to the questions as towhich class certification is sought.

However, a recent Second Circuit decision, In re Nassau County Strip481Search Cases, took a different view, holding that a district court may

certify a Rule 23(c) (4) issue class even when the entire class fails theRule 23(b)(3) predominance requirement, because the language ofthe rule indicates that the issues should first be identified and then therequirements of the rule applied. The court found additional supportin the Advisory Committee Notes.45

Even without resort to "issue classes," some federal courts havebeen willing to certify national class actions without too much regardfor choice of law concerns. For example, Judge Jack Weinstein certi-•. - 50

fied a nationwide punitive damages class in In re Simon II Litigation,which was brought as a limited-fund class for punitive damages on be-half of smokers against cigarette manufacturers.5 1 Judge Weinstein-ostensibly applying New York choice of law rules-found that, in acase such as this, New York substantive law should govern claims forpunitive damages for all members of the class. Judge Weinstein ex-pressed the view that, although the highest court in New York had''never specifically addressed how conflicts rules apply in a complexlitigation setting like the present one,"52 he ascertained a "U]udicialpreference for material justice in conflict cases., 53 He formulated this

48 461 F.3d 219 (2d Cir. 2006).

49 Id. at 226. For more on the conflicting views with respect to "issue certification,"compare Laura J. Hines, The Dangerous Allure of the Issue Class Action, 79 IND. L.J. 567,586-88 (2004), arguing that a class action must meet all of the 23(b) (3) requirementsbefore it can be divided into issue classes, with Elizabeth J. Cabraser, The Class ActionCounterreformation, 57 STAN. L. REV. 1475, 1499 (2005), stating that "[l]ssue[s] pro-posed for class treatment [need only] be of 'central' importance to the disposition ofthe case." Attention to the "issue class" has also been a theme in the American LawInstitute project on Principles of the Law of Aggregate Litigation. SeeALI, PRINCIPLESOF THE LAW OF AGGREGATE LITIGATION § 2.02 (Tentative Draft No. 1, Apr. 7, 2008).

50 In re Simon II Litig., No. 00-5332, 2002 U.S. Dist. LEXIS 25632, at *319(E.D.N.Y. Oct. 22, 2002).

51 Plaintiffs chose to bring a limited-fund class action for punitive damages and toforego an opt-out class action for compensatory damages. See id., at *23-26; see also In reSimon 1I Litig., 211 F.R.D. 86, 99-101 (E.D.N.Y. 2002), vacated, 407 F.3d 125, 137-38(2d Cir. 2005).

52 In re Simon It Litig, 2002 U.S. Dist. LEXIS 25632, at *235.53 Id. at *252.

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preference as an approach that would lead to the application of a sin-gle law. Under these circumstances, he found that the facts that de-fendants' activities had "decisive connections" to New York and two ofthe defendants had their principal places of business there5 4 justifiedapplication of New York law with respect to all of the plaintiffs' claims.Whatever the desirability of a single law in a case like In re Simon II,Judge Weinstein's prediction of how a New York court would applythe Neumeier v. Kuehner principles 55 in a setting such as this raised anumber of eyebrows, and Judge Weinstein himself offered the Courtof Appeals for the Second Circuit some suggestions in regards to ma-

56nageability and subclassing, should it decide to reverse him.

The possibility of subclassing has provided several courts a basisfor justifying class certification notwithstanding decisions such asRhone-Poulenc and Bridgestone/Firestone. For example, in Southern StatesPolice Benevolent Ass'n v. First Choice Armor & Equipment, Inc., involving aclass action on behalf of law enforcement officers and organizationsagainst manufacturers for the sale of defective armor to police de-partments around the country, the court concluded that the twelvejurisdictions in which warranty laws varied presented "no materialconflicts" and that "any variations in state warranty laws can be man-aged and modified at a later stage, if necessary. '57 This approachseems to reinvigorate the seemingly moribund approach of "certifynow and worry later"; on the other hand, the action was not completelynationwide and the variations in the state laws may have been rela-tively minor.58 A more strategic approach to certification was under-taken by the plaintiffs' class action lawyers themselves in Muehlbauer v.

54 Id. at *260-63.55 See Neumeier v. Kuehner, 286 N.E.2d 454, 457-58 (N.Y. 1972). The Neumeier

rules are usually cited as reflecting the approach to choice of law taken by the NewYork Court of Appeals.

56 In re Simon IILitig., 2002 U.S. Dist. LEXIS 25632, at *258, *275-76. The SecondCircuit did in fact overturn Judge Weinstein's certification of the class, but the Courtof Appeals did not address the choice of law issue. The court held that the actioncould not be certified as a mandatory limited fund class because the plaintiffs did notdemonstrate either the upper limit or insufficiency of the posited fund such that indi-vidual plaintiffs would be prejudiced if left to pursue separate actions. In re Simon IILitig., 407 F.3d 125, 138 (2d Cir. 2005).

57 241 F.R.D. 85,91 (D. Mass. 2007).58 For an example of how subclassing may avoid choice of law difficulties in the

context of a medical monitoring class for injunctive and declaratory relief under Fed-eral Rule of Civil Procedure 23(b) (2), see In re Welding Fume Prods. Liab. Litig., 245F.R.D. 279, 293-94 (N.D. Ohio 2007).

CHOICE OF LA W IN NATIONAL CLASS ACTIONS

General Motors Corp.,59 where the lawyers separated the nationwide classof purchasers and lessees of vehicles that contained defectively de-signed braking systems into several discrete subclasses prior to the de-fendant's motion to dismiss. In denying the defendant's motion todismiss, the court addressed the future issue of certification. Becausethe complaint contained six counts and the class for each count waslimited to purchases in states that had similar laws, the court observedthat "[u]nder these groupings, plaintiffs do not present a single na-tionwide class, and there is a predominance of common legal issues ineach subclass. Plaintiffs have made a sufficient showing at this earlystage that the litigants, as grouped, are governed by the same legalrules."60

Some district courts have used the more direct approach of find-ing that the applicable choice of law rule points to a single law, andthereby eased certification of the class. One such case is Powers v. Ly-coming Engines, in which a nationwide class of prior and present own-ers of aircraft brought suit against a defendant manufacturer for al-legedly selling defective engine crankshafts. With respect to the classclaims for unjust enrichment and breach of implied warranty, thecourt applied the Restatement (Second) of Conflict of Laws and concludedthat the "significant relationship" with the parties and the transactionwas with Pennsylvania because the engines were manufactured there.62

59 431 F. Supp. 2d 847 (N.D. Il. 2006).60 Id. at 872 (internal quotation marks omitted).61 245 F.R.D. 226 (E.D. Pa. 2007). For another example, see Grove v. Principal

Mutual Life Insurance Co., 14 F. Supp. 2d 1101, 1106-07 (S.D. Iowa 1998), which ap-plied the law of the defendant's principal place of business to nationwide class claimsfor fraud and misrepresentation in marketing of life insurance policies.

62 Powers, 245 F.R.D. at 232. The court explained its reasoning as follows:

After weighing the factors .... the balance tilts in favor of applying Pennsyl-vania law. Pennsylvania has the most significant relationship to the transac-tion and the parties. It is the center of the activities that gave rise to theclaims. Lycoming is a Pennsylvania manufacturer that has been sued here,where it manufactured the crankshafts and engines. Lycoming issued servicebulletins and instructions, communicated orally and in writing about thecrankshafts and sent press releases from its headquarters in Pennsylvania, andplans to replace crankshafts here.

On the other hand, the contacts with the plaintiffs presumably took place intheir home states where the), purchased, operate, and moor their aircraft. Yet,considering the mobility of a plane, it could have been purchased and trans-ported from a state other than a plaintiffs home state. Because Lycoming'sengines are part of aircraft manufactured by others, it is unlikely that theplaintiffs purchased the aircraft in reliance on anything Lycoming may have

2008] 2013


The case seems to be an outlier in terms of application of Restatement(Second) principles, although a few state courts have reached a similarconclusion. A federal court in Minnesota, in In re St. Jude Medical,Inc.,64 adopted similar reasoning, albeit under Minnesota's brand ofinterest analysis and "better-law" approach to choice of law issues.There, in a consumer class action filed against a Minnesota manufac-turer of heart valves, the court applied Minnesota law to all classmembers because Minnesota had "a compelling interest in redressingwrongs committed within its borders" that was both a "moral interestin providing redress for those who are injured" and "an economic in-terest because when out-of-state persons are harmed by illegal actionsof Minnesota businesses, the reputations of other Minnesota busi-nesses are also tarnished." 65 The court reasoned that the eighteenstates that had more stringent liability standards and offered greaterprotection to manufacturers than did Minnesota would not have aninterest in preventing the application of a rule that would benefittheir own citizens. 66 This analysis is a perverse understanding of the"interest analysis" approach to choice of law. 67

represented. Consequently, the place where the false representations werereceived is not a factor.

Id.Id See infra notes 87-106 and accompanying text.64 MDL No. 01-1396, 2006 WL 2943154, at *2, *5-7 (D. Minn. Oct. 13, 2006). The

district court's certification of the class followed a remand from the Eighth Circuit thatreversed an earlier certification for failure to consider the extraterritorial applicationof Minnesota statutes to a nationwide class and to conduct a thorough conflict of lawsanalysis. See In re St. Jude Med., Inc., 425 F.3d 1116, 1119-21 (8th Cir. 2005). On re-mand, the district court conducted a more traditional conflicts analysis and found thatMinnesota law should nonetheless apply. The Eighth Circuit reversed the certificationa second time on the ground that the common issues did not predominate over indi-vidual issues. It did not address the district court's choice of law ruling. See In re St.Jude Med., Inc., No. 06-3860, 2008 WL 942274 (8th Cir. Apr. 9, 2008).

65 In re St. Jude Med., Inc., 2006 'WL 2943154, at *6.66 Id. The court stated that the interests of those states were "furthered through

the application of Minnesota law to their citizens because all consumer fraud laws inthe nation are designed to protect consumers to some degree." Id. Interestingly, onappeal, the Eighth Circuit reversed the certification of the class because common is-sues did not predominate, but it did not address the district court's choice of law rul-ing. See In re St. Jude Med., Inc., 2008 WL 942274.

67 Missing from such an analysis is the fact that different state consumer fraud sta-tutes offer different balances between the rights of consumers and protection formanufacturers. Properly understood, "interest analysis" does not mean that the appli-cable law is the foreign law because the foreign law benefits the residents of the statewith the competing law. A court might properly find that the more protective ruledoes not apply because the defendant is not a local citizen or resident, and thereforethe state has "no interest" in the application of its rule. Alternatively, however, such a

2008] CHOICE OF LA W IN NA TIONAL CLASS A CTIONS

D. State Choice of Law Rules in Class Actions

As noted earlier, the federal courts in these class action choice oflaw cases felt bound under Erie and Klaxon to adopt the choice of lawapproach of the respective states in which they sat, and thus were lim-ited as to how they might expressly shape choice of law to accommo-date aggregate litigation. Of course, the interpretation of what thestate choice of law rules are and how they apply to particular factsleaves the federal courts with substantial power in determining howchoice of law will affect certification. But the state courts ultimatelyhave the more robust role because they are in a position to adapt theirchoice of law rules to facilitate class treatment if that is a desired goal.In some early cases, trial courts in certain states hearing class actionsembraced precisely that philosophy, and, not surprisingly, class actionlawyers quickly filed suits in those jurisdictions to take advantage ofchoice of law approaches that would facilitate nationwide class treatment.

Initially, the Texas state courts were one such place, but the deci-sion of the Texas Supreme Court in Henry Schein, Inc. v. Stromboe69

made Texas a less attractive forum. In Schein, the Texas SupremeCourt decertified a nationwide class of purchasers of defective soft-ware products, asserting breach of contract, breach of express andimplied warranties, and other claims against the dental groups thatproduced and marketed the software. The trial court determined thatall of the claims could be governed by Texas law because the softwarewas designed and manufactured in Texas and some of the software li-cense agreements contained choice of law provisions calling for Texaslaw.7 0 The Texas intermediate court agreed with the analysis of thetrial court and held that Texas law should also apply to causes of ac-tion other than the contractual claims because they arose out of theparties' contractual relationships."' On appeal to the Texas SupremeCourt, the court reversed the choice of law ruling with respect to classmembers who did not have choice of law clauses agreeing to be boundby Texas law. 2 Further, the Texas Supreme Court noted that class

protective interest could be furthered when a nonresident defendant conducts busi-ness in the state with the greater protection for that party.

( See David Marcus, supra note 13, at 1282-86 (discussing choice of law rulings byfederal judges and noting that, as a consequence of adverse rulings, "plaintiffs' lawyersbegan to abandon federal courts for state fora").

69 102 S.W.3d 675 (Tex. 2002).70 Id. at 684.71 Id. at 687.72 Id. at 696-97.

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members without choice of law clauses were not subject to Texas lawmerely because the defendant was located in Texas. 3 And with re-spect to the noncontractual claims of non-Texas plaintiffs, the TexasSupreme Court also found that the defendant's "presence in Texas[was] but one factor to be considered in determining the applicablelaw and does not, by itself, dictate that Texas law will govern the non-contract claims of class members in other states.' 74

A decision like Schein leads to interesting strategic choices for theuse of choice of law clauses in consumer contracts as a means to blockclass litigation. Note that if the choice of law clause points to the lawof a single state-such as the seller's principal place of business-classsuits against the seller will be easier since the application of a single lawmay satisfy the commonality and predominance requirements neces-sary for class certification. On the other hand, a choice of law clausethat might ostensibly seem more favorable to the consumer-e.g., thelaw of the state where the consumer resides-presents the difficulty ofthe application of multiple laws in class actions. Even when the law ofa single state is chosen, certain claims, such as fraud, may not fall with-in the choice of law clause, 75 and for those claims certification may stillbe improper. Other courts, such as an Illinois appellate court in Hallv. Sprint Spectrum Ltd. Partnership,76 have been more generous in inter-preting the scope of a choice of law clause. In Hall, the court affirmedthe certification of a nationwide class of cell phone users who broughtboth contract and fraud claims challenging Sprint's early terminationfees; the court found that the provision in the contract stating that theagreement was "governed by the law of Kansas" applied to both thecontract and fraud claims."

Class action suits without the broad array of claims asserted inSchein may still find favor with Texas's or another state's supremecourt. To that end, plaintiffs often attempt to limit the class claims toa particular theory of recovery where there is less likely to be variationamong the state laws, or where the particular choice of law rule maytend to point to the application of a single law. Such was the strategy

78of the class plaintiffs in Compaq Computer Corp. v. LaPray, where a na-

73 Id.74 Id. at 697.75 See Lewis Tree Serv., Inc. v. Lucent Techs., Inc., No. 99-8556, 2002 WiL

31619027, at *4 (S.D.N.Y. Nov. 20, 2002).76 876 N.E.2d 1036 (Ill. App. Ct. 2007).77 Id. at 1041-44.78 135 S.W.3d 657, 661 (Tex. 2004).


tionwide class of purchasers of personal computers alleged that thefloppy disk controllers were defective and brought claims for breachof express warranty against the manufacturer. Both the trial and ap-pellate court presumed that there was no real variation among thelaws in the affected jurisdictions and ruled that the class could be cer-tified, noting that it could await trial to consider whether there was aparticular issue on which Texas law conflicted with that of anotherstate.7 9 The Texas Supreme Court reversed this approach of "certifynow and worry later," holding that in ruling on motions for class certi-fication, trial courts must conduct an extensive choice of law analysisbefore they can determine predominance, superiority, cohesiveness,and even manageability. so

Note, however, that so long as one state is prepared to apply a sin-gle law and thereby facilitate aggregation, the courts of that state willattract litigation on behalf of the nationwide class, whether or not it isthe most appropriate forum for the litigation. This type of egregiousforum shopping is illustrated by an unreported Oklahoma case, Griderv. Compaq Computer Corp."' Grider, which was a carbon copy (except fora different named plaintiff) of the nationwide class action brought byconsumers complaining about defective floppy disk controllers in La-Pray, was filed in Oklahoma while the "same" Texas class actionagainst Compaq was on appeal. Although a nationwide class had al-ready been certified in Texas, the class action lawyers were concernedabout a reversal because of the earlier Texas Supreme Court decisionin Schein, and so they filed the very same action in Oklahoma, wherethey hoped for a more favorable approach to choice of law. Theirconcerns were justified when the Supreme Court of Texas reversedthe certification of the class in the LaPray case, indicating that Texaslaw could not govern the claims of all class members and remandingfor determination of the applicable law and the effect on certificationof a national class.83 Notwithstanding the Texas Supreme Court deci-

79 Id. at 662.

8I Id. at 663.81 No. 03-0969 (Okla. Dist. Ct. Oct. 26, 2004) (order declaring choice of law), affd,

No. 102,693 (Okla. Civ. App. Oct. 13, 2006), cert. denied, No. 102,693 (Okla. Mar. 26,2007). Rulings on the class-certification issue and subsequent appeals in the Okla-homa courts can be found in Compaq's Petition for a Writ of Certiorari in the Su-preme Court of the United States (on file with author).

82 That view was based on the recent Supreme Court of Oklahoma decision, Ys-brand v. DaimlerChr-ysler Corp., 81 P.3d 618 (Okla. 2003), discussed infra note 89 and ac-companying text.

83 See supra note 80 and accompanying text.

2017


sion that had been rendered by this time, the Oklahoma trial courtruled that, under Oklahoma choice of law rules, the laws of Texas, asthe state of the principal place of business of the defendant, were ap-plicable to the UCC warranty claims.8 4 The Oklahoma Appeals Courtaffirmed the decision, and the Oklahoma Supreme Court denied re-view. Whether Grider illustrates only a biased state court choice of lawruling in order to facilitate aggregation or a more serious breach offull faith and credit to the Texas judgment is left unanswered becausethe U.S. Supreme Court denied Compaq's certiorari petition8 6

A strategy of narrowing claims to obtain application of a single lawin a nationwide class action continues to have limited success in somecontexts, both in Texas and elsewhere. In Farmers Insurance Exchangev. Leonard,'7 a Texas appellate court approved class certification in anaction by agents against their insurance company for failure to paycertain bonuses. The court held that California, as the principal placeof business of the defendant and the place where the bonus contractswere administered, had the most significant interest in the case, andthus California law could be applied to the entire class.Y8 In Ysbrand v.DaimlerChrysler Corp.,s9 the Oklahoma Supreme Court affirmed the cer-tification of a nationwide class of owners of minivans, limited tobreach of warranty claims for defects in the front passenger seat air-bags brought against the defendant rianufacturer. 9" The OklahomaSupreme Court held that the law of Michigan-as the principal placeof business of the defendant-was applicable to plaintiffs' warrantyclaims, and therefore common questions of law predominated. 91

84 CGider, No. 03-0969 (Okla. Dist. Ct. Oct. 26, 2004).85 Grider, No. 102,693 (Okla. Civ. App. Oct. 13, 2006).86 Compaq Computer Corp. v. Grider, 169 L. Ed. 2d 261 (2007).87 125 S.W.3d 55 (Tex. App. 2003).88 Id. at 61-65. Farmers Exchange may not be good law after Compaq and Schein. See,

e.g., Nat'l W. Life Ins. Co. v. Rowe, 164 S.W.3d 389, 392-93 (Tex. 2005) (per curiam)(reversing certification of a class where the lower court applied the law of insurancecompany's principal place of business rather than the law of the insured's domicile inan action brought by purchasers of life insurance policies alleging various claims fortort and breach of contract, and remanding for a detailed analysis of the relevantstates' interests); Tracker Marine, L.P. v. Ogle, 108 S.W.3d 349, 356, 363 (Tex. App.2003) (reversing certification of a nationwide class action brought on behalf of con-sumers for misrepresentations made by a Missouri manufacturer and indicating thatstates where the consumers reside have the "most significant interest" in the claims in-volving fraud and misrepresentation).

so 81 P.3d 618 (Okla. 2003).90 Id. at 629.91 Id. at 624-27.

2008] CHOICE OF LA WIN NA TIONAL CLASS ACTIONS

However, as to claims for fraud and misrepresentation asserted by theclass, the court held that where class members presumably receivedthe representations in their home states, the applicable law was that ofeach class member's home state.92 As a result, a nationwide class forS 9 3

fraud and misrepresentation was denied. In a subsequent decision,Harvell v. Goodyear Tire & Rubber Co.,;4 the Oklahoma Supreme Courtagain ruled that the law of the principal place of business of the de-fendant was not applicable to contract and unjust enrichment claimsby a nationwide class of consumers for illegal supply charges imposedupon them by defendants. The court noted that the appropriate lawwas that of the place where each class member had the service per-

95formed.Not all state courts have been quite so restrictive with respect to

certification of nationwide classes for fraud and misrepresentation. InInternational Union of Operating Engineers Local #68 Welfare Fund v. Merck& Co." a New Jersey appellate court upheld certification of a nationalclass and approved the trial court's choice of law analysis applying thelaw of the defendant's principal place of business-New Jersey. Theplaintiffs were a nationwide class of third-party payors who allegedthat they had overpaid for the drug Vioxx because the defendant didnot disclose the serious health risks associated with the drug. Apply-ing its understanding of the conflict of laws principles in the Restate-ment (Second) of Conflict of Laws as interpreted in NewJersey, the appel-late court found that NewJersey's Consumer Fraud Act was directed atdeterrence and, as a result, New Jersey's contacts and interests werethe "most significant. ,

7

The approach to choice of law in International Union was inconsis-tent with the choice of law analyses of other New Jersey courts in bothclass and nonclass contexts;' a final resolution of the New Jersey ap-

92 d. at 626-27.9I Id. at 627.94 164 P.3d 1028, 1033-36 (Okla. 2007).95 Id.96 894 A.2d 1136, 1153-54 (NJ. Super. Ct. App. Div. 2006), rev'd on other grounds,

929 A.2d 1076 (N.J. 2007).97 Id. at 1147-48.98 See, e.g., Rowe v. Hoffman-La Roche, Inc., 917 A.2d 767, 772-75 (NJ. 2007)

(holding that Michigan's interest in promoting the availability of affordable prescrip-tion medication to its citizens outweighed NewJersey's interest in deterring NewJerseycorporations from providing inadequate warnings); Deemer v. Silk City Textile Mach.Co., 475 A.2d 648, 651-53 (NJ. StIper. Ct. App. Div. 1984) (holding that New Jersey'sdeterrent interests were outweighed by compensation structure in plaintiffs home

2019


proach to choice of law in such cases seemed to rest with the New Jer-sey Supreme Court once the certification issue was appealed. And al-though the New Jersey Supreme Court ultimately reversed the classcertification for lack of "predominance" and "superiority" under theNew Jersey class action rule,9 it expressly avoided the question ofwhether New Jersey's consumer fraud statute could be applied to allclass members.' 00

It is noteworthy that the lower appellate court in International Un-ion, in applying the NewJersey Consumer Fraud Act to all members ofthe nationwide class, did not formulate a specialized choice of law rulefor aggregate litigation and purported to apply the same choice of lawrule it applies in individual litigation. Most courts are unlikely to betransparent in this regard even though judges are undoubtedly influ-enced by the particular context that a case presents. Such "influence"may be difficult to detect, but a recent Supreme Court of Illinois case,Barbara's Sales, Inc. v. Intel Corp.,"" identified just such an attempt toovercome a choice of law obstacle and expressly rejected the lowerappellate court's attempt to mold choice of law rules to avoid theproblems that application of different laws presents for aggregate liti-gation. The Illinois Appeals Court for the Fifth District had reversed atrial court's refusal to certify a nationwide class against a Californiamanufacturer that had allegedly engaged in unfair business practicesto conceal that its microprocessor did not perform as represented. 0 2

Plaintiffs had alleged that the California Consumer Legal RemediesAct and the California Unfair Competition Law applied to the claimsof all plaintiffs since the substantial part of defendant's conduct hadtaken place in California. The trial court ruled that California lawcould not be applied to the nationwide class because California didnot have the "most significant relationship" to the action. The appel-

state); Heindel v. Pfizer Inc., 381 F. Supp. 2d 364, 370-78 (D.N.J. 2004) (applying NewJersey choice of law and rejecting application of New Jersey law as the principal placeof business of the defendant to the entire class).

9 Int'l Union, 929 A.2d at 1085-89.100 In a footnote, the NewJersey Supreme Court stated that

[a]lthough defendant advances strong arguments in support of its appealfrom the Appellate Division's choice of law analysis, in light of our decision onpredominance and superiority, we express no view on the Appellate Division'schoice of law reasoning or the result it reached as to the applicability of ourlaw to all members of a nationwide class.

Id. at 1086 n.3.101 879 N.E.2d 910, 922 (I11. 2007).102 Barbara's Sales, Inc. v. Intel Corp., 857 N.E.2d 717, 724 (II. App. Ct. 2006).

CHOICE OF LAW IN NATIONAL CLASS ACTIONS

late court reversed, purporting to apply the principles of the Restate-ment (Second) of Conflict of Laws and concluding that California, theprincipal place of business of the defendant and the place where theconduct leading to the injury occurred, had the most significant rela-tionship to the parties and the transaction. 1

03 A significant aspect of

the appeals court's decision was its consideration of the litigation as aclass action. Although the court did not expressly say that it was alter-ing Illinois choice of law principles to facilitate aggregation of theclaims in a class action, its language is revealing. Concluding thatCalifornia, as the principal place of business of the defendant Intel,had the strongest interest in having its regulatory scheme applied tothe conduct of Intel, the court stated,

California is clearly the only state where conduct relevant to all the potentialclass members occurred. California law takes on added significance when

the relevant factors stated in section 6 of the Restatement are consid-ered. The needs of the interstate system and the basic policies of pre-dictability and uniformity of result require one forum with one result ratherthan results in 51 jurisdictions with the distinct possibility of conflictingdecisions. 04

In reversing the Illinois appellate court on the choice of law point,the Illinois Supreme Court in Barbara's Sales criticized the lowercourt's concern for "one forum with one result," and noted that"[t] his declaration completely ignores the distinct interests of the dif-fering states embodied in our federalist system and constitutionalprecedent."1 0

5' As the Illinois Supreme Court further explained,

The goals of the "needs of the interstate system" principle are "to makethe interstate and international systems work well," to promote "harmo-nious relations," and "to facilitate commercial intercourse betweenthem." The Restatement also directs courts to strive to adopt "the samechoice of law" rules reflected in other states' precedent. The applicationof California law or Illinois law, as plaintiffs urge in this nationwide class,to a citizen of Washington state who purchased his computer in Wash-ington state does nothing to improve the harmonious relations betweenthe states. Thus, we are not persuaded that section 6 of the Restatementcompels us to apply California law. 106

103 Id. at 722.104 Id. (emphases added).105 Barbara's Sales, 879 N.E.2d at 921.106 Id. at 922 (citations omitted).

2008] 2021

2022 UNIVERSITY OFPENNSYLVANIA LAWREVIEW [Vol. 156:2001

II. THE RELATIONSHIP OF CLASS ACTIONS AND CHOICEOF LAW: THE NORMATIVE QUESTIONS

A. Should There Be a Specialized Choice of Law Rule for Class Actions?

Aggregate litigation presents the question as to whether this typeof litigation justifies a specialized choice of law rule designed to facili-tate the aggregation. The answer will depend on (1) how one per-ceives the role of choice of law in the legal system; and (2) how oneunderstands the function of the class action in its relationship to indi-vidual litigation. As Professor (now Dean) Larry Kramer emphasizedin his early article, Choice of Law in Complex Litigation, choice of law ispart of the set of substantive rights that a party has when asserting aclaim. 1°7 When one posits that the claims of individuals in a class ac-tion would, in the absence of the class context, be decided under dif-ferent laws, it is not clear why aggregation should alter that result.Certainly as conceived by the 1966 amendments to Rule 23, the classaction was not designed, nor could it have purported, to change thesubstantive rights of the parties. The reason for the class device is thata coherence of rights and claims already exists among potential classmembers, and it is the existence of those elements that makes the rep-resentative suit appropriate. To use the class action as thejustification

for altering choice of law rules would be to put the cart before thehorse and to misunderstand the role of both class actions and choice

of law.'0 s

Judge Weinstein in the Simon II case presents a quite differentview of both choice of law and class litigation. He sees the class action

as something more than just the amalgam of individual claims and the

107 Larry Kramer, Choice of Law in Complex Litigation, 71 N.Y.U. L. REV. 547, 549(1996) ("Because choice of law is part of the process of defining the parties' rights, itshould not change simply because, as a matter of administrative convenience and effi-ciency, we have combined many claims in one proceeding ... ").

108 See Richard A. Nagareda, Aggregation and Its Discontents: Class Settlement Pressure,Class-Wide Arbitration, and CAFA, 106 COLUM. L. REv. 1872, 1911 (2006) [hereinafterNagareda, Aggregation and Its Discontents] (noting that a choice of law rule for aggregatelitigation is problematic because it uses the aggregate nature of the action to alter sub-stantive law); see also Richard A. Nagareda, Bootstrapping in Choice of Law After the ClassAction Fairness Act, 74 UMKC L. REv. 661 (2006); Richard A. Nagareda, The PreexistencePrinciple and the Structure of the Class Action, 103 COLUM. L. REV. 149, 189-98 (2003). Butcf ElizabethJ. Cabraser, The Manageable Nationwide Class: A Choice-of-Law Legacy of Phil-lips Petroleum Co. v. Shutts, 74 UMKC L. REv. 543, 567 (2006) ("It is particularly im-portant, at this juncture, that the federal courts ... recogniz[e] that the supposed'precedents' of earlier decision [sic] denying such certification may be[,] as a matterof procedural justice, obsolete .... ").

2008] CHOICE OF LA W IN NA TIONAL CLASS ACTIONS

class as a necessary remedial device to respond to nationwide harms;accordingly, he believes that choice of law rules must be modified ifnecessary to achieve 'justice" for the class. But justice is not an ab-stract principle: it is in the mind of the beholder. The communitiesin which the parties reside and act-the relevant state or nation-define the applicable principles of justice for that community. Con-flicts arise because the lawmaking bodies of different states and differ-ent nations "see the world quite differently."'0 9 Choice of law rules-or rules of private international law in the transnational setting-offera method for accommodating these principles when particular trans-actions and events bring them into conflict. "o

Like Professor Kramer, I do not believe that courts should be in thebusiness of altering the choice of law rules that have been developed forindividual cases."' Certainly in the pre-CAFA era, in which ProfessorKramer wrote, I do not believe that it was for the federal courts to re-structure the federalism values inherent in Erie and Klaxon solely be-cause Federal Rule 23 permitted the aggregation of state law claims inthe service of efficient federal court management. And although statechoice of law rules are largely judge made, it seems to me that a similarpresumption holds for the state judiciaries as well: courts should notview consolidation as a reason to change the applicable law that wouldapply to the rights of the parties if the case or cases were proceeding asindividual litigations.1 2 The underlying principle is that aggregationmechanisms are procedural only and offer efficient procedures for ad-judicating the individual rights of many. 3

109 Harold P. Southerland, Sovereignty, Value Judgments, and Choice of Law, 38 BRAN-DEIS L.J. 451, 455 (2000).

110 1 have written about these issues in a quite different context. See Linda Silber-

man & Karin Wolfe, The Importance of Private International Law for Family Issues in an Eraof Globalization: Two Case Studies-International Child Abduction and Same-Sex Unions, 32HOFSTRA L. REv. 233, 233 (2003); Linda Silberman, Same-Sex Marriage: Refining the Con-flict of Laws Analysis, 153 U. PA. L. REv. 2195, 2197 (2005).

Professor Kramer directs his concerns largely to the federal courts, which arebound to apply state law, including choice of law. He emphasizes that the federalcourts ought not to make independent choice of law rules or manipulate state choiceof law. He also has some advice for the state courts-that is, that they should use thesame choice of law rules in complex and ordinary cases, and not use consolidation tochange the applicable law. See Kramer, supra note 107, at 549-50.

12 There are certain nuanced aspects to this issue, such as whether the plaintiff orthe defendant has the burden of demonstrating variations in the competing state laws.See Woolley, supra note 27, at 173941 & nn.92-103.

113 That is also the view taken by the American Law Institute. See ALI, supra note49, § 2.05 & Reporters' Notes cmt. a ("This Section as a whole proceeds on the premisethat choice of law is a dimension of the larger inquiry into the constraints imposed by

2023


A more difficult question is whether legislatures (for federalcourts it would be Congress; for state courts it would be the respectivestate legislatures) should readjust the substance of choice of law rulesfor class actions and other types of aggregate litigation. The answerdepends on one's underlying philosophy of class actions more gener-ally. If one subscribes to an entity model of group litigation wherebyindividual interests are subordinated as a means to pursue collectiveaction for the entity,1 1 4 the argument for legislative reordering ofchoice of law might be enhanced. However, an entity model is bestdeveloped in an overall legislative scheme where specific tradeoffs andreassessments of regulatory rules would be part of any reconceptual-ized regime. 1 . The imposition of a new regime of choice of law uponexisting regulatory rules is-to borrow from a well-known metaphor ina different choice of law context-to "put together half a donkey andhalf a camel, and then ride to victory on the synthetic hybrid." 11 6

Moreover, if the inquiry is how state legislatures should view choice oflaw for nationwide class actions, perhaps the question is being put tothe wrong decisionmaker. The choice of applicable law or laws in anational class action might be more well-suited to a federal solution bya national decision maker.1 1 7 Such a national "decision maker" didemerge when Congress enacted CAFA, but, if anything, the legislativehistory of CAFA makes clear that there was no intention of diluting therole of applicable state substantive law in order to facilitate aggregation.

B. The Impact of the Class Action Fairness Act on Klaxon

Congress's recent attention to national class actions in the ClassAction Fairness Act provides a particular focus for thinking about therole of choice of law in class litigation. Pursuant to that legislation,federal courts, rather than state courts, have been given decision-

substantive law upon aggregation, not a matter of procedural choice akin to the deci-sion to aggregate itself.").

114 See David L. Shapiro, Class Actions: The Class as Party and Client, 73 NOTRE DAME

L. REV. 913,918-19 (1998).11.5 Silberman, supra note 3, at 211 (suggesting that the entity model only be used

"within a particular contextual and substantive framework").16 DAVID F. CAVERS, THE CHOICE-OF-LAw PROCESS 39 (1965).117 Indeed, some might argue that choice of law rules as a whole should have been

entrusted to the U.S. Supreme Court or Congress to fulfill the role of neutral umpirein competition among states for application of their particular rules. See Letter fromJames Madison to George Washington (Apr. 16, 1787), reprinted in JAMES MADISON,THE FORGING OF AMERICAN FEDERALISM 184-87 (S. Padover ed., 1953), quoted in AN-DREAS F. LOWENFELD, CONFLICT OF LAwS 377 (2d ed. 2002).


making power over certification of most nationwide class actions. Thelegislation contains no provision on choice of law," s although effortswere made by some to that end." 9 Indeed, during the course of thefloor debate, the Senate rejected an amendment providing that thefederal courts should not deny class certification merely because thelaw of more than one state would be applied. 12 °

The role for choice of law in national class actions under CAFA(and federal class actions more generally) raises numerous complexi-ties in a system that rejects a "national law" for choice of law generallyand for class actions specifically. A federal/national choice of law ap-proach to all nationwide class actions-whether brought in state orfederal court-would bring uniformity to applicable law in a variety of

class action contexts and would avoid both interstate and intrastate fo-rum shopping for favorable choice of law as a means of achieving classcertification. But the imposition of federal law upon state courts in anarea that has always been the province of state law presents almost in-surmountable federalism objections.

A less controversial proposal might be to adopt a federal choice oflaw rule for nationwide class actions that have been brought in orremoved to federal court under CAFA. If one views CAFA asdesignating specific types of class actions appropriate for "nationaltreatment"-that is, in need of federal jurisdiction to ensure neutral

and nonparochial assessment with respect to class viability-it couldbe argued that such cases are also deserving of "neutral" choice of lawrules. Indeed, if state choice of law principles themselves reflect thekind of parochialism that CAFA was attempting to correct, 12 an anti-

18 CAFA provides for original and removal jurisdiction in federal court for class

claims based on state law whenever there is minimal diversity between any plaintiffclass member and any defendant and the aggregate amount in controversy exceedsfive million dollars. 28 U.S.C. § 1332(d) (2) (A) (Supp. V 2005). Class members arepermitted to aggregate their claims. Id. § 1332(d)(2). Any defendant has the right toremove the action from state to federal court. Id. § 1453(b). However, the districtcourt will not hear the action if a substantial majority of the proposed plaintiff class arecitizens of the same state as all primary defendants. Id. § 1332(d)(4)(B). The districtcourt also must decline jurisdiction if a substantial majority of the plaintiff class is fromthe same state as one primary defendant when the principal injuries occurred in thatstate. Id. § 1332(d) (4) (A).

,9 For a discussion of these various proposals, see supra note 13.120 151 CONG. REc. S1166 (Daily ed. Feb. 9, 2005); see also supra note 13 (discussing

various proposals).121 See, e.g., S. REP. No. 109-14, at 62 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 58

(concluding that federal courts will not "botch these critical choice-of-law issues" as

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Klaxon rule would seem particularly appropriate. Such a rule would

prevent forum shopping among the states to achieve favorable choiceof law treatment for class actions, and because cases falling within

CAFA will usually end up in federal and not state court, the"inequality" that a federal choice of law rule might create with respect

to a similar action in state court does not occur in this context. 22

The concept of a federal choice of law rule for cases under CAFA

is attractive, but Congress's failure to include one underscores institu-

tional concerns about whether it is proper for the courts to create

one. A direction by Congress to the federal courts that they are notbound by state choice of law rules and should apply "federal" choice

of law rules to a question of "applicable law" would be both appropri-ate and pragmatic. 2" The premise is that the framework for moreneutral decision making created by federal court jurisdiction for na-

tionwide class actions by CAFA should not be frustrated by parochial

state choice of law rules. It is not so much that CAFA should be readas an implied repeal of Klaxon, 24 but rather that Klaxon need not beextended to situations where the federal courts will in effect have

primaryj urisdicton.2

5

some state courts have done); see also Woolley, supra note 27, at 1726-47 (questioningwhether federal jurisdiction is appropriate to correct choice of law abuses).122 ..

This may be a slight overstatement, since defendants might choose not to re-move if a case falling within CAFA is brought in state court. Since absent class mem-bers do not have a right to remove under CAFA, there may be some cases that meetthe requirements of CAFA that would not be removed. This would be particularly truein settlement class actions, but in such cases choice of law as a practical matter doesnot play a role. For further discussion of the impact of CAFA on absent class members,see Tobias Barrington Wolff, Federal Jurisdiction and Due Process in the Era of the Nation-wide Class Action, 156 U. PA. L. REV. 2035 (2008). Also, to the extent that some re-mands under CAFA are discretionary, certain nationwide class actions would be re-manded back to state court. But in this situation, it could be argued that when a casedoes not warrant federal treatment tinder CAFA and is properly heard by the statecourt, the state choice of law rule is also proper.

23 Federal common law" on choice of law already does exist in a number of ar-

eas. See, e.g., Eli Lilly Do Brasil, Ltda. v. Fed. Express-Corp., 502 F.3d 78, 80-89 (2d Cir.2007) (liability of air carriers); Lien Huynh v. Chase Manhattan Bank, 465 F.3d 992,997 (9th Cir. 2006) (foreign banking transactions to which a U.S. corporation is aparty).

124 See Richard L. Marcus, Assessing CAFA's Stated Jurisdictional Policy, 156 U. PA. L.REv. 1765, 1815 (2008).

125 But see Griffin v. McCoach, 313 U.S. 498, 503-04 (1941) (holding that a federalcourt is required to follow the state choice of law rule in a diversity action even thoughthe federal court was exercising nationwide service of process under the Federal Inter-pleader Act and the state court would not have had a similar reach). However, Griffinis not a serious obstacle because a federal choice rule there would have made federalinterpleader a device for interstate forum shopping. See RUSSELLJ. WEINTRAUB, COM-


C. The Appropriate "Federal" Choice Rule

A proposal for a national choice of law rule for federal class ac-tions-but with a quite different agenda than my own-has beenmade by Professor Samuel Issacharoff in two recent articles.126 Profes-sor Issacharoff argues that because nationwide class actions are the re-

sult of a national market for goods that ultimately cause nationalharm, the subject is one for attention by the national legislature-

Congress.12 To the extent that Issacharoff is correct, the most appro-priate response to his concerns is creation at the federal level of a sin-gle national law on products liability or consumer fraud. With such a

regime, interests of consumers and of manufacturers would be de-bated and reflected in the content of any such national law. But pre-cisely because there has been no agreement or consensus through thedemocratic process about what the "national" law should look like, at-tempts to achieve national statutory solutions have failed.

In the absence of federal substantive law to address the liability ofactors in the national market, a federal choice of law rule might fit thetypes of nationwide classes that already have been identified by CAFA

as appropriate for federal court treatment. The Klaxon rule, whichrequires federal courts to follow state choice of law rules, is not an ob-

stacle since it is not required either by the Constitution or by theRules of Decision Act."' Klaxon's rejection of a federal choice of lawrule for federal diversity cases more generally was prompted by a pref-

erence for intrastate uniformity over interstate uniformity because in-trastate forum shopping was perceived as the more serious and morelikely evil. Even if that were true at the time Klaxon was decided, theworld looks different today. The growth of national (and global)markets combined with the expansion of jurisdiction over corporatedefendants gives plaintiffs a wide and almost unlimited choice as to

MENTARY ON THE CONFLICT OF LAws 724-25 (5th ed. 2006). Moreover, Griffin has beenextensively criticized. See ALl, STUDY OF THE DIVISION OF JURISDICTION BETWEEN

STATE AND FEDERAL COURTS 211-12, 402-03 (1969); Charles E. Clark, State Law in theFederal Courts: The Brooding Omnipresence of Erie v. Tompkins, 55 YALE L.J. 267, 286-88(1946).

126 See Samuel Issacharoff, Getting Beyond Kansas, 74 UMKC L. REV. 613 (2006) [he-reinafter Issacharoff, Getting Beyond Kansas]; Samuel Issacharoff, Settled Expectations in aWorld of Unsettled Law: Choice of Law After the Class Action Fairness Act, 106 COLUM. L.REV. 1839 (2006) [hereinafter Issacharoff, Settled Expectations].

127 See Issacharoff, Getting Beyond Kansas, supra note 126, at 616-19; Issacharoff, Set-tled Expectations, supra note 126, at 1870-71.

12P28 U.S.C. § 1652 (2000). The Rules of Decision Act requires that the laws ofthe several states apply, but never says which state law.

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2028 UNIVERSITY OFPENNSYLVANIA LAWREV1EW [Vol. 156:2001

the state in which they can bring a nationwide class action against adefendant. Moreover, as noted earlier, states have adopted variousapproaches to choice of law. This combination means that even astate with no connection to the particular transaction can use itschoice of law approach to select the law or laws applicable to thetransaction. A federal choice rule for federal nationwide class actionswould have the advantage of eliminating forum shopping among thestates for favorable choice of law rules. Because CAFA has alreadyidentified certain types of cases as justifying federal treatment-in thiscontext, access to a federal court-those cases would seem to be pre-cisely the right candidates for a federal choice of law rule.

One flaw in the above analysis is the potential overinclusiveness ofthe cases brought into federal court under CAFA. For example, 12 9

consider a class action in which all plaintiffs who reside in the forumstate-for example, Texas-sue over conduct engaged in by a Califor-nia defendant. The defendant is subject to jurisdiction in Texas, andthe events in question and the plaintiffs all have strong connectionswith Texas. "This is a Texas lawsuit in every respect other than theformal citizenship of the defendant,"'13 0 but if the aggregate amount ismet, the action comes within CAFA. The plaintiff may bring the suitin federal court in Texas, or if plaintiff sues in state court, the defen-dant is able to remove the case to federal court. Moreover, "neitherthe discretionary nor mandatory abstention provision of the Act ap-plies" because the defendant is not a citizen of the forum state. 3 1

Thus, this is one example of a CAFA case that would not seem to callfor a national choice of law rule. 1

32 Nonetheless, in most cases to

which CAFA applies, a federal choice of law rule that would accom-modate the competing interests of the various states would seem to beappropriate.

Unfortunately, most of the proposals calling for a national choiceof law rule have no real interest in such federalism values. For exam-ple, Professor Issacharoff seeks a specific choice of law rule for na-tionwide class actions and argues that CAFA permits the federal courtsto "craft a sensible choice of law rule that corresponds to the identi-

19 This example is found in LINDA J. SILBERMAN, ALLAN R. STEIN & TOBIASBARRINGTON WOLFF, CIVIL PROCEDURE: THEORYAND PRACTICE 1052-53 (2d ed. 2006).

130 Id. at 1053.:31 Id. (citing 28 U.S.C. § 1332(d) (3)-(4) (Supp. V 2005)).132 Of course, this is a case where Texas law would likely be selected as the appli-

cable law regardless of whether a state or federal choice of law rule was used.


fled national scope of the underlying conduct."'' 33 But, as ProfessorBurbank points out, such authority is completely inconsistent with thelegislative history and the effects CAFA was designed to bring about.13 4

Moreover, Professor Issacharoff's proposed solution-of having thelaw of a single state control a nationwide class-is inconsistent withthe purported emphasis on a national market. Application of the law

of the state of the principal place of business allows one state's legisla-ture or one state's development of a common law rule to dictate thesubstance of the applicable standard for the national market. In a re-gime where state law will govern the rights and liabilities of the par-ties, the federal choice rule should be one that continues to respectthe different substantive judgments reflected in the laws of different

states, and that considers the underlying purposes of the rules in ques-tion and the interests of the competing states.

Interestingly, when one looks to the original Rome Conven-tion 1'and now the proposed Rome I Regulation-that harmonizeschoice of law rules concerned with the internal market within the Eu-ropean Community, one finds that in the case of consumer actions, itis the law of the habitual residence of the consumer and not the law ofthe principal place of business of the manufacturer that is the appli-cable law chosen. Concededly, these European rules have been de-

veloped for individual actions and not group litigation. But they shedsome light on the kinds of choice of law rules that are developed forgroups of states concerned with a national market. None of this is toreject the possibility that in a particular case--depending on the com-peting substantive rules in the various states-the law of the principalplace of business of the defendant might apply. But many of thosewho propose application of a "single law" for class actions have littleinterest in the values of choice of law as such. The same can be said

about many of the critics of the "single law" approach.

Consider the positions taken by each side-lawyers for the classrepresentative and lawyers for the defendants-on these choice of law

133 See Issacharoff, Settled Expectations, supra note 126, at 1870, 1861-71.

Stephen B. Burbank, Aggregation on the Couch: The Strategic Uses of Ambiguity andHypocrisy, 106 COLUM. L. REV. 1924, 1943 & n.129 (2006) ("[T]he Act does not changethe application of the Erie Doctrine, which requires federal courts to apply the sub-stantive law dictated by applicable choice of law principles in actions arising under di-versity jurisdiction." (quoting S. REP. No. 109-14, at 49 (2005), reprinted in 2005U.S.C.C.A.N. 3,46)).

135 European Economic Community, Convention on the Law Applicable to Con-tractual Obligations, opened for signatureJune 19, 1980, 1980 O.J. (L 266) 1.

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questions in class actions. 16 Lawyers for the class dismiss concerns

that the law where the defendants are headquartered may be substan-tially less favorable than the laws of other states where many-maybeeven most-of the class members reside, or that such a rule will pro-vide an incentive to defendants to locate in states with the most favor-able rules to defendants. Certainly in individual litigation a choice oflaw rule like this would be strongly resisted by the plaintiff side whowould object that such a choice of law rule creates a "race to the bot-tom" such that defendants would locate in such "low consumer pro-tection" states. But lawyers for the class want to create the largest pos-sible group of plaintiffs because their fees will be calculated on thebasis of the class-wide relief; state-wide classes more narrowly definedand limited to claims applying similar law will be far less lucrative andcommand a much smaller settlement. And it is nationwide settle-ments that are the norm in this litigation-desired by plaintiffs, whowant a large class, and also by defendants, who want nationwide peace.Of course, the position of defendants in the adversarial stages of thechoice of law argument is also somewhat ironic-they argue that thelaw of the defendant's principal place of business ought not to be theapplicable law because the law of the plaintiffs' home states often pro-vides plaintiffs with greater opportunity to recover against the defen-dant. 137 One would be surprised to hear that argument from defen-dants in an individual litigation. Needless to say, defendants' interestsare not really directed to concerns about more generous recoveriesfor plaintiffs, but are shaped by an appreciation that application ofdifferent laws to various groups of plaintiffs will make class certifica-tion less likely.

The proposals urging application of the principal place of busi-ness of the defendant have one objective: to ensure that nationwideclass actions do not sound the death knell for consumer and othertypes of negative-value class actions. In effect, it is an attempt to crafta choice of law rule for class litigation so that a single law can apply toall plaintiffs' claims and satisfy the "predominance" and "superiority"requirements of class action rules. Such a position is ironic in light of

134, See supra text accompanying notes 5-6.137 See, for example, Farmers Ins. Exch. v. Leonard, 125 S.W.3d 55 (Tex. App.

2003), where, in a breach-of-contract class action, the California-based defendantmade the argument that California law would be unfair to plaintiffs. The court notedthe irony of the defendant's position and found that the differences between the law ofCalifornia and other states were minor. Id. at 64-65. The court then affirmed certifica-tion of the class. Id. at 71.

2008] CHOICE OF LAW IN NATIONAL CLASS ACTIONS

the fact that one of the main purposes behind CAFA was to preventstate courts from acting as magnet courts and deciding law for the restof the country. If Congress should decide that consumer fraud andproducts liability claims present problems of national scope andshould be governed by a single substantive standard, then Congressshould enact federal substantive law that takes into account the na-tional consensus about what the content of such a rule should be.Federal legislative solutions of this kind could also provide for aggre-gation of individual suits or offer an independent remedy, such as thetype of public action that is the model for collective litigation in manycountries in the European Union. 38

In entrusting class action litigation to the federal courts withoutaccompanying federal substantive law or federal choice of law princi-ples, Congress has allowed the choice of law consequences to fallwhere they may. As suggested earlier, the applicable choice of lawrule should not tilt in the direction of either enhancing or discourag-ing class certification. In other words, a statute concerned primarilywith adjusting federal subject matter jurisdiction over class actionsshould allow the choice of law rules to play out neutrally in the classaction context. At the same time, it may have been a mistake to ne-glect the repercussions of choice of law in the enactment of CAFA.

The applicable choice of law will continue to be the rule that wouldbe applied by the state court in which the federal court sits. If thestates do in fact develop choice of law principles that favor aggrega-tion or that further local interests at the expense of national ones,139

it

is not clear why a federal court in a national class action should be re-quired to follow suit. 140 Under CAFA, the propriety of a nationwide

138 See, e.g., Harald Koch, Non-Class Group Litigation Under EU and German Law, IIDUKEJ. COMP. & INT'L L. 355, 357-58 (2001) (discussing two models of collective inter-est representation practiced in EU member states).

13 See, e.g., Barbara's Sales, Inc. v. Intel Corp., 857 N.E.2d 717, 722-23 (11. App. Ct.2006) (holding that the law of the principal place of business of the defendant, Cali-fornia, should apply in order to facilitate certification of consumer class), rev'd, 879N.E.2d 910 (I1. 2007); Int'l Union of Operating Eng'rs Local #68 Welfare Fund v.Merck & Co., 894 A.2d 1136, 1148-51 (N.J. Super. Ct. App. Div. 2006) (applying thelaw of the forum state, NewJersey, because it was the principal place of business of thedefendant and NewJersey's deterrent interests were more significant than the interestsof the payors' home states), rev'd on other grounds, 929 A.2d 1076 (N.J. 2007).

140 That point is developed by Professor Richard Nagareda in a recent article. Na-gareda, Aggregation and Its Discontents, supra note 108, at 1918-22. Although, underKlaxon, a federal court would appear to be obliged to follow the state's law, ProfessorNagareda notes that the Supreme Court, in Byrd v. Blue Ridge Rural Electric Cooperative,356 U.S. 525 (1958), allowed the Erie principle to be overcome in certain situations.

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class is more appropriately determined and managed by a federal (ra-ther than state) court. A federal choice rule that balances the com-peting policies underlying the state laws vying for application to theparticular class members and the events in question is attractive. Anindependent federal choice rule would also have the advantage ofeliminating forum shopping by lawyers for the class in search of a par-ticular state in which to bring a class action in order to take advantageof a particular state's choice of law rules.

There are a number of possible models for developing the con-tent of an independent federal choice of law rule. Carefully designedchoice of law rules are presented in the ALI's 1994 Complex Litiga-tion Study;141 those rules do express a preference for application of asingle state's law, but ultimately offer a methodology consistent withmodern choice of law analysis. Moreover, rather than force a singlelaw upon the case, related provisions contemplate division of the ac-tion into subgroups of claims, issues, or parties to assist in aggregatinglitigation where multiple laws may apply. Suggestions from othersources include the development of specialized rules for particularkinds of cases, such as consumer actions. 142 In any event, any choice oflaw rule that is adopted should be one that continues to respect thedifferent substantive judgments reflected in the laws of different statesand nations and that considers the underlying purposes of the sub-stantive rules in question.

None of this is to say that the application of different laws to classactions and other kinds of aggregate litigation is necessarily dispositiveof the certification issue. It may be possible in some cases to use sub-

With respect to CAFA, it is plausible that because CAFA "effectively shuts down thestate court with regard to class certification," Klaxon should bow to Congress's notionthat aggregation should not affect a substantive remedy. Nagareda, Aggregation and ItsDiscontents, supra note 108, at 1921. This principle, and not federal/state forum shop-ping, is arguably the problem that the Act aimed to remedy. Id. at 1918-22; see alsoBurbank, supra note 134, at 1950-51 ("[W]here state choice of law doctrine is materi-ally influenced by state policy reflecting a bias in favor of aggregate litigation, CAFA'sjurisdictional provisions-reflecting (most charitably) a policy to enable aggregationdecisions unaffected by that bias-may plausibly be thought, in the words of the Rulesof Decision Act, to require otherwise than that such state law applies.").

I do not think the suggestion offered by Professors Nagareda and Burbank is aworkable one because it will always be unclear when the state choice of law rule reflectsa "bias in favor of aggregate litigation." The application of a federal choice of lawnorm offers a more certain and clearer solution.

141 ALl, supra note 10.142 See, e.g., Phaedon John Kozyris, Conflicts Theory for Dummies: Apr~s le Deluge,

Where Are We on Producers Liability, 60 LA. L. REV. 1161, 1173-81 (2000).

2008] CHOICE OF LAW IN NATIONAL CLASS ACTIONS

classes and accommodate variations in state laws. Applicable state lawsmay be grouped into manageable patterns such that complicationsfrom choice of law differences can be obviated.143 In other cases, vari-ations in state law may be too complex, and certification should be re-fused. But it is these management issues-and not choice of law-where attention and reform should be directed. 144

One recent district court decision suggests that all the attention tochoice of law may have been premature. In re Pharmaceutical IndustryAverage Wholesale Price Litigation145 involved two putative classes ofplaintiffs: one class of persons who made copayments for Medicaredrugs manufactured by certain defendants, and a second class ofthird-party payors who made reimbursements for those drugs basedon contracts using a particular pricing standard. Plaintiffs urged thatsince the inflated price was established at the respective defendants'principal places of business, the law of each of those states should go-vern the entire nationwide class. Defendants argued that the applica-ble law was that of the home states of the various class members, and,with respect to members of the Medicare class who were not reim-bursed, the law of each state where the drug was purchased. More-over, according to defendants, the consumer protection statutes inthese various states had quite different legal standards. The districtcourt judge applied Massachusetts choice of law rules to the entireconsolidated action, which included cases transferred from otherstates. "C' Applying the Restatement (Second) of Conflict of Laws, the courtheld that "the home state of the consumer has a more significant rela-tionship to the alleged fraud than the place of business of the defen-dant... since state consumer protection statutes are designed to pro-

14. See In reThe Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450,467-68 (D.NJ. 1997), affd in part, 148 F.3d 283 (3d Cir. 1998); see also Fruehwald, supranote 2, at 359-60 ("The use of subclasses may not be as difficult as some commentatorsandjudges claim.").

144 See, e.g., ALI, supra note 49, § 2.12 (Trial Plan for Aggregation). Although thepreliminary proposals have a definite pro-aggregation bias, they are directed to themanagement of class actions and not to a reformulation of choice of law rules for ag-gregate litigation.

145 230 F.R.D. 61 (D. Mass. 2005).146 Id. at 82. Because the Massachusetts court was sitting as an MDL forum, there

was an open question as to whether the Massachusetts conflicts rules were appropriatefor the transferred cases. The usual rnle is that the choice of law rules of the transferorstate should apply. See Grispino v. New Eng. Mut. Life Ins. Co., MDL No. 1105, 2003U.S. Dist. LEXIS 25664, at *9-10 (D. Mass. May 20, 2003), affd on other grounds, 358F.3d 16 (lst Cir. 2004).

2033


tect consumers rather than to regulate corporate conduct."'' a7 How-

ever, unlike the usual case where a win on choice of law by defendantsalso leads to a denial of certification, the district court here offered amuch more nuanced analysis. After examining the fifty-state survey

offered by defendants to highlight the differences among state con-

sumer laws, the district court investigated the issues in each of theproposed classes, permitted certification of a class of physician-

administered drugs, and denied certification of a class that involved

self-administered and specialty pharmacy drugs. The district judge's

observations on this point were intriguing:

[W] hile it is tempting to apply the consumer protection laws of the stateswhere defendants have their principal places of business to promote uni-form results and the ease of managing a class, under the Restatement,the laws of the home states of the consumers govern.

Having smelled victory on the choice-of-law issue, defendants expecta knock-dead punch on their argument that the differences among thestate consumer laws are so significant that they cause individual issues topredominate. Indeed, in a double-dare at oral argument, they waxedthat no court in the nation has successfully certified a nationwide con-sumer class for litigation (as opposed to settlement) purposes.148

CONCLUSION

Choice of law has an important role to play in the certification ofnationwide class actions. But courts should avoid manipulating choice

of law principles to ensure aggregation. The procedural tools of ag-

gregation should not distort the underlying substantive rights of the

parties. Courts should approach choice of law as they would in the

paradigm individual case. If that analysis produces application ofmultiple laws, courts should consider the management techniquesthey have under their class action rules and procedures and deter-

mine whether aggregation is appropriate given that different rules of

law will apply. If choice of law is not viewed as the dispositive factor incertification, perhaps the genuine federalism concerns that should in-

fluence the substance of choice of law rules will once again becomethe focus of attention.

147 In re Pharm. Indus. Average Wholesale Price Litig., 230 F.R.D. at 83.148 Id.

Documents

The Role of Choice of Law in National Class Actions role of choice of law in national class actions linda silbermant intro d uctio n ..... 2001